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Floating LNG:
Revolution and
evolution for the
global industry?
kpmg.com/energy
KPMG INTERNATIONAL
2014 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
Fl oat i ng LN G : R evol ut i on and evol ut i on f or t he gl obal i ndus try ? 2
Overview
This report is intended to provide an overview of the
developments that the liquefied natural gas (LNG)
industry is facing during its unprecedented wave
of expansion. Security of energy supply has always
been one of the critical issues many countries face.
Unlocking potential reserves economically and
rapidly is essential to deliver energy security and can
potentially affect trade flows profoundly. Floating LNG
is an emerging technology for such fast and cost-
effective development of new gas resources.
This is the second in a series of LNG reports that
will provide deeper insights on specific elements
of governance, jurisdiction, stakeholders and
opportunity.
2014 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
3
Introduction
On 20 May 2011, Shell took final investment decision on the
Prelude Floating LNG Project, to be installed off the north-west
coast of Australia. Fast forward to 3 years later and Shell has laid
the keel of the largest floating structure ever launched. The hull of
this vessel, 488 meters long, would envelop the Statue ofLiberty.
Sydney Taj Mahal Eiffel Tower Shell FLNG Willis Tower Canton Tower Burj Khalifa
Opera House Agra Paris facility Chicago Guangzhou Dubai
Sydney (top view)
London Eye N Seoul Tower Petronas Towers Taipei 101 Ostankino Tower Tokyo Sky Tree
London Seoul Kuala Lampur Taipei Moscow Tokyo
2014 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
Fl oat i ng LN G : R evol ut i on and evol ut i on f or t he gl obal i ndus try ? 4
Norway
Russia
Canada
USA
Israel
China
Mauritania
Nigeria
Trinidad Malaysia
Colombia Ghana
Australia
Firm
Probable
Possible
*KPMG International Inc., 2014; D. K. Jordan, (27 May 2014), Floating LNG, Clarkson Research Services Ltd. As of September 2014; may be subject to change.
2014 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
5 Floa ting L NG: Rev olution a n d e v o lu t io n f o r t h e g lo b a l in d u s t r y?
FLNG emerges
There are two scenarios for the future In a 2 September 2014 interview with
Floating LNG and the development of floating LNG. It may Bruce Steenson, General Manager
become a niche technology that is of Integrated Gas Programs and
development of new applied by a few companies to solve Innovation for Shell International
pricing methods and specific problems, with land-based Exploration and Production B.V., he
unconventional gas-to-LNG configurations remaining the default. compares the prospects for FLNG
This could happen if the first FLNG to floating production, storage and
projects, may lead towards plants encounter cost or operational offloading vessels (FPSOs). From the
a faster-moving, more difficulties or if land-based costs fall first oil FPSO in 1977, over a period of
diverse and more flexible as the current construction boom 1977 to 2000, 50 FPSOs were slowly
ebbs. For smaller offshore gas fields, installed. Between 2000 and 2010,
global LNG industry. compressed natural gas or small-scale came another 100.
gas-to-liquids may become viable
Is FLNG, in short, a refinement
competitors.
or a transformation? Why should
However, in the second scenario, if the companies choose FLNG over a land-
first few projects are successful, FLNG based plant? And, what is required to
can emerge as a standard approach make an FLNG project successful?
that eases the industrys problems with
cost inflation and opens it up to a much
wider range of fields and companies.
The concurrent development of
floating regasification giving access
Bruce Steenson to a range of smaller markets, and the
General Manager of Integrated development of new pricing methods
Gas Programs and Innovation and unconventional gas-to-LNG
Shell International Exploration and projects, may lead towards a faster-
Production B.V. moving, more diverse and more
Bruce has spent more than 30 years flexible global LNG industry.
working for Shell on development
projects in the Middle East, Central Asia,
Europe, South America and Australia
in roles spanning well engineering,
production technology, process
engineering and development project
management. He is currently Managing
Shells LNG Programs and Innovation in
their Integrated Gas business.
2014 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
Fl oat i ng LN G : R evol ut i on and evol ut i on f or t he gl obal i ndus try ? 6
7.5%
frustrated with budget blow-outs
between 2014 and 2020. But this may
and slow time to market. Rising labor
be just the start. Pacific Rubiales
costs, workforce activism, community
Colombia project and Petronass
opposition, complex environmental
PFLNG-1 should enter service in 2015, of the industrys
approvals, infrastructure challenges
Shells Prelude in 2017 and Murphy/ total capacity
related to the difficulty of construction
Petronass PFLNG-2 in 2018, with
in remote locations and unfavorable
Excelerates Port Lavaca in Texas
exchange rate movements have all By
intended for 2019. Perencos just-
contributed to cost over-runs.
sanctioned Kribi LNG in Cameroon is 2022
Construction costs, usually the largest slated for 2017 start-up. ExxonMobil/
single component, run at 30 percent BHPs Scarborough project in Western there FLNG vessels
of total project cost, but in Australian Australia would be the worlds in place
projects, this has risen to 50-60
could
largest, at 6-7 million tonnes per year.
percent. From 2000 to 2013, average Shipbroker Clarksons estimates that
be
capital costs of liquefaction plants rose by 2019, likely global FLNG capacity
from US $300 per tonne per year to will be 44 million tonnes peryear,
$1200.1 about 7.5 percent of the industrys
... with another 22 possibles
total capacity. By 2022, there could be 2
One example, Gorgon, is now
22FLNG vessels in place, with another
estimated to cost AUS $54 billion,
22possibles.2
up from the original AUS $37 billion,
and research firm Douglas Westwood Colombia and Port Lavaca are
estimated that Australia could miss out essentially inshore barge-mounted
on AUS $97 billion (US$85 billion) of designs, not very different from a
LNG investments if it were unable to land-based facility. EXMARs barge for
get costs under control. Pacific Rubiales is being constructed
in China at a very competitive
North America and East Africa are
reported cost of US$700 per tonne.
emerging as major potential LNG
The Petronas and Shell projects are
players, but proponents in new supply
however, different true open-water
centers such as Western Canada and
LNG FPSOs presenting higher costs
Mozambique worry about similar cost
and greater design challenges.
inflation, in an environment of flat or
falling oil and LNG prices. There are 10 reasons why a project
developer may consider floating LNG.
Proponents whose project features one
or more of these have a strong impetus
to consider floating solutions.
1
. Songhurst (February 2014) LNG Plant Cost Escalation, Oxford Institute for Energy Studies
B
2
D.K. Jordan (27th May 2014) Floating LNG, Clarkson Research Services Ltd.
2014 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
7 Floa ting L NG: Rev olution a n d e v o lu t io n f o r t h e g lo b a l in d u s t r y?
3
http://www.woodside.com.au/our-business/browse/documents/browse_flng_development_-_fact_sheet_-_April_2014.pdf
4
B. Songhurst (February 2014) LNG Plant Cost Escalation Oxford Institute for Energy Studies
2014 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
Fl oat i ng LN G : R evol ut i on and evol ut i on f or t he gl obal i ndus try ? 8
5
See, for instance, No paper chase: Transforming risk management at energy and natural resources companies, KPMG (2014)
2014 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
9
Nobuo Tanaka
Professor, GraSPP, the University of Tokyo
Global Associate for Energy Security and Sustainability
Institute of Energy Economics, Japan (IEEJ)
Nobuo Tanaka has extensive national government and international experience in the fields of energy, trade and innovation. As Executive
Director of the International Energy Agency (IEA) from 2007-11, Mr. Tanaka led work on fossil fuel subsidy reform, energy efficiency policy
recommendations (adopted by the G8), low-carbon energy technology roadmaps, gas and electricity security, energy poverty and carbon
capture and storage, among others. With a strong background in international affairs, Mr. Tanaka has served as both Deputy Director and
Director for Science, Technology and Industry (DSTI) of the Paris-based Organisation for Economic Co-operation and Development (OECD).
2014 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
Fl oat i ng LN G : R evol ut i on and evol ut i on f or t he gl obal i ndus try ? 10
2014 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
11 Floa ting L NG : Rev olution an d e v o lu t io n f o r t h e g lo b a l in d u s t r y?
6
J. Marshall and I. Grose (May 2014) Shell Australia preparing to operate Prelude FLNG Australian Petroleum Production & Exploration
Association conference
7
M. Haney, M. Loffman and S. Robertson (5th February 2014) FPSO industry must re-think supply chain Offshore Magazine, Volume 74, Issue 2.
2014 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
Fl oat i ng LN G : R evol ut i on and evol ut i on f or t he gl obal i ndus try ? 12
8
N. White (2nd July 2013) Drivers, Challenges and Solutions for FLNG KBR presentation to IE Australia Perth Oil& Gas Facilities Group
2014 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
13 Floa ting L NG: Rev olution a n d e v o lu t io n f o r t h e g lo b a l in d u s t r y?
Emma Wild
Head of Upstream Advisory Practice
KPMG in the UK
Emma Wild is an upstream specialist with a background and education in both chemical
and reservoir engineering. With 20 years of international experience in the oil and gas
sector and financial services, her primary focus is on transactions, corporate finance
valuations, debt advisory and strategy. Prior to KPMG, she acted as Technical Advisor for
a large UK financial services institution and holds various senior reservoir engineering
and business development/new ventures roles globally.
Kimiho Sakurai
Section 5 Leader, Business Development Unit 2
Chiyoda Corporation
Mr. Sakurai is responsible for Business Development of FLNG / Floater worldwide, hydrocarbon business
development over the Middle East, Russia, CIS, Europe, Oceania, and Latin America regions. In previous
roles, he was Director of Chiyoda International Indonesia, responsible for overall corporate activities of
Chiyoda subsidiary in Indonesia, cum General Manager, Regional Business Development, South East Asia and
responsible for business development activities across South East Asia.
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Fl oat i ng LN G : R evol ut i on and evol ut i on f or t he gl obal i ndus try ? 14
With more than 500 large crude oil Financing, legal, tax and
tankers, FPSOs and LNG tankers in regulation
service, construction of a few FLNG
vessels should not tax shipyard Shell will own the Prelude facility,
capacity, but some may be expanded but other companies are looking at
and retooled to specialize in such leasing, with Teekay, SBM Offshore
projects. LNG proponents, especially and BW Offshore interested in
supermajors, may benefit from building constructing FLNG ships for lease,
a portfolio of FLNG projects. Alliances as with ordinary FPSOs. Leased
between E&P companies, EPC ships may be smaller, 2-3 million
tonnes per year rather than Preludes
Jonathan E. Smith
contractors and shipyards can develop Partner, Energy and Natural Resources
the ship-builders capabilities for these 3.6Mtpa, and use simpler liquefaction Oil and Gas Sector Leader
vessels and maximize the benefits technology. This widens the circle of KPMG Australia
from learning and standardization. potential developers.
Jonathan Smith brings over 25 years
E&P companies, however that have Project finance will also only be readily of experience in systems and process
advocated FLNG for a long time, such available once FLNG has proved its improvement. He specializes in assisting
as Shell and Petronas, will also need to viability. As Jonathan Smith, Partner, finance leaders in capital intensive
protect their intellectual property and Energy and Natural Resources and Oil industries on performance improvement
competitive edge. Shell has worked on of finance operations through CFO
and Gas Sector Leader, KPMG Australia
Prelude with a consortium of Technip advisory, financial transformation and cost
notes however, with Prelude costing
and Samsung as long-term technology optimization/transparency. Jonathan has
an estimated AUS $12 billion, FLNG published on the role of the CFO in the
partners. projects will still largely be the domain development of corporate strategy, cost
Potential FLNG developers will be of supermajors. Companies will need optimization and developing a cost culture
closely watching the first few projects. to work closely with finance providers in LNG/CSG projects.
If these go smoothly, with no serious to understand what they need to see
budget over-runs, delays or technical to establish the technical reliability and
problems, other companies will bankability of their project and reduce
gain confidence. This is particularly the risk premium attached to project
important for smaller companies, which lending and EPC contracts.
could not absorb the costs and risks of
an unsuccessful development.
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15 Floa ting L NG: Rev olution a n d e v o lu t io n f o r t h e g lo b a l in d u s t r y?
9
FLNGs Hard Sell (25th September 2013), Petroleum Economist
2014 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
Fl oat i ng LN G : R evol ut i on and evol ut i on f or t he gl obal i ndus try ? 16
10
FLNG Gets Serious (August 2010), Gas Today
2014 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
17 Floa ting L NG: Rev olution a n d e v o lu t io n f o r t h e g lo b a l in d u s t r y?
Conclusion
The nascent FLNG industry is entering a critical period.
The Golden Age of Gas is With the worlds first four FLNG projects due to enter
leading to the Golden Age
service between 2015 and 2018, the front-runners, as well
of LNG. 11
as other likely proponents, will be watching closely. They
will be keen to see whether these plants are delivered on-
time and on-budget and whether they perform well with
no serious design or operational flaws.
Proponents will weigh the 10 key reasons to consider
floating LNG when making an investment decision. In
some cases, onshore or floating solutions may both be
viable. In others, the choice will be between a floating
system or no project at all. As standardization and
experience drive down costs, FLNG may widen its reach.
FLNG is not radically different from other projects
the industry is familiar and comfortable with. It does,
however, present some novel challenges less on
the technical side and more to do with the supply
chain, project management, stakeholder engagement,
financing, regulation and tax.
Floating plants can emerge as part of a more diverse,
faster, cheaper and more agile global LNG industry. As
Nobuo Tanaka observes, such continuing innovations are
essential to deliver the IEAs forecast Golden Age of Gas.
11
T. Regan, Tri-Zen International, 'LNG 50', 2014.
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Fl oat i ng LN G : R evol ut i on and evol ut i on f or t he gl obal i ndus try ? 18
nderstand the reasons for choosing a floating solution over a land-based plant. Not all
U
factors are applicable to every project. Some projects may only be viable with a floating
plant; others may present a real choice. Land-based, inshore and true blue-water FLNG
plants also present different issues. Align with project partners and host governments early
on regarding the criteria for concept selection.
onitor the progress of the early FLNG projects and understand the challenges they
M
meet and how they are overcome. Gather relevant data on cost and schedule to judge the
economics of future projects and scope for improvement.
onsider what is different about FLNG projects and what is common to all LNG
C
investments. Understand the supply chain and the differences in project management.
Learn from FPSO construction how to manage issues such as shipyard capacity and hull-
topsides integration.
egin building alliances with EPC companies, shipyards and potential local service
B
providers.
nderstand regulatory, legal, financing and tax issues well ahead of investment decisions.
U
Engage with relevant stakeholders early and identify key risks and mitigation strategies.
2014 KPMG International Cooperative (KPMG International). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
19 Floa ting L NG: Rev olution a n d e v o lu t io n f o r t h e g lo b a l in d u s t r y?
Risk identification Mitigating risks through tools and methodologies that address
Enterprise risk management demand planning, supply and inventory management, strategic
Outsource or insource? sourcing and contract management.
Business operations strategy Organizational effectiveness, business readiness for LNG and
Demand side management operational excellence.
Issue recognition and strategy development Designing or improving current business processes, including
Business operations strategy implementing technology focusing on logistic, supply chain and
Capitalizing on different technology investments procurement management, are services that member firms
Quality reporting advisory teams have delivered successfully.
Meeting increasing regulatory, government and Managing relationships between IOCs and NOCs is critical to
multiplestakeholder demands ensuring a balance between political and commercial objectives,
Managing major capital expenditure projects and such as royalty and taxation, security of supply, employment
energyinvestment requirements and infrastructure development. We assist IOCs and NOCs
Security of supply in creating a stable and attractive investment environment by
Talent management developing policy and governance structures.
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Fl oat i ng LN G : R evol ut i on and evol ut i on f or t he gl obal i ndus try ? 20
Webcast replay
Major LNG projects (or visit kpmg.com/energy)
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Publication name: Floating LNG: Revolution and evolution for the global industry?